AeroGrow International, Inc. (OTCMKTS: AERO) Unique Growth Story

AeroGrow International, Inc. (OTCMKTS: AERO) Unique Growth Story


AeroGrow International, Inc. (OTCMKTS: AERO) shares are currently trading in the $4.10-$5.85 range, have received a boost recently from the company’s improved financial performance and signs of future growth potential. The company currently has a market capitalization of $43.39 million. Over the past 52 weeks, shares of AERO have traded as low as $0.86 and as high as $5.85.

AERO is a developer, marketer, direct seller and wholesaler of indoor garden systems designed for consumer use in gardening, cooking, healthy eating and home décor. The company’s flagship product line, recently rebranded to include its popular countertop gardens, has tapped into rising consumer demand for fresh, organic produce that’s grown locally. Using these indoor gardens, for example, consumers can easily grow tomatoes, chili peppers, salad greens, fresh herbs and flowers right in their own kitchens.

AeroGrow International, Inc. (OTCMKTS: AERO) driving force behind it’s stock price surge is the market perception that the company is an indirect play on marijuana legalization. After all, the company is based in Boulder, Colorado, which has become a city at the forefront of the national debate over marijuana legalization. Moreover, the company’s indoor gardens and hydroponics equipment can be used to grow anything, even the cannabis plant.

In contrast to marijuana penny stocks, however, AERO offers potentially more safety and upside. That’s because a key stakeholder in AERO is Scotts Miracle-Gro (NYSE: SMG), a company known for its grass and lawn care products. In April 2013, Scotts Miracle-Gro acquired a 27 percent stake in AERO. Then, a year later, it boosted its stake to 30 percent. And, then, in 2015, Scotts Miracle-Gro increased its holdings in the company to 39.2 percent.

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The Scotts Miracle-Gro relationship has already paid huge dividends for AERO. It means that AERO products are now available at major retailers such as Amazon, Costco, Home Depot, Target and Lowe’s. This retail channel continues to grow, with AERO products now available at large retailers such as Sur La Table and ACE Hardware. And, as part of a partnership that enables AERO access to SMG’s customer e-mail database, AeroGrow has been able to build out its D2C (direct to consumer) channel.

That expanded retail and distribution capability has already started to have an impact on AERO’s financial performance. On August 11, AERO released its first quarter financials. Sales were up 37 percent, to $2.2 million for the quarter. EBITDA improved by 45 percent. And Gross Margin improved by 850 basis points, to 39 percent. Overall, the company exceeded analyst expectations, reporting $0.20 EPS.

Going forward, look for AERO to continue to expand its retail and direct-to-consumer models. The company now has a presence in the U.S., Canada, Europe, Asia and Australia, backed by consumer demand for healthy produce and fresh herbs that they can grow at home, under any conditions.

The wildcard factor for investors, of course, is the marijuana legalization issue. Thus far, AeroGrow International has deferred any commentary about when it would enter the market, only noting that its indoor garden, nutrient formulas and seedpod kits could be used “to grow anything.” Moreover, since SMG is an active and highly visible stakeholder, it may be too early to predict a direct play on the cannabis industry.

The bigger picture, though, is the growth story at AERO. Just three years ago, the company was facing major questions about its future financial viability. AERO, though, successfully re-branded its product line, scaled up its retail network and lined up a major marketing and distribution partner. During the analyst earnings call in August, AERO noted that it had more product launches ahead in the fall, and that’s driving investor expectations for further momentum in the company’s stock price. For continuing coverage on AERO and our other hot stock picks, sign up for our free newsletter today and get our next hot stock pick!

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